Berkshire Hathaway as part of the mix?

wmd36 · Post by **wmd36** » Fri Dec 23, 2022 5:54 am

I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

Mike Scott · Post by **Mike Scott** » Fri Dec 23, 2022 6:14 am

If you search, there have been a hundred discussions of pro and cons of BRK. Some people buy it and some don't for their own reasons.

Outer Marker · Post by **Outer Marker** » Fri Dec 23, 2022 6:38 am

Warren Buffett's own advice is that most investors would be better served by holding the S&P 500 index. That said, I hold a chunk of Berkshire in my taxable account, which amounts to 8 percent of my portfolio. It is very tax efficient because Warren never pays out dividends and reinvests all of the proceeds back into its companies and/or stock buybacks. I like Buffett's focus on value investing and buying companies that actually make money. Its P/E ratio is attractive relative to the market. And, I enjoy reading the annual shareholder letter and watching the meeting. I don't see any harm in holding it as a complement to an otherwise index portfolio.

nisiprius · Post by **nisiprius** » Fri Dec 23, 2022 7:34 am

No, a single stock should not be a "major core holding."

1) You can make out a "case" for anything. Nothing in investing is sure.

The "case" for index funds is, basically, that you can't be sure anything else is better, so you might as well go for simplicity and low cost. It's really a simple as that. (And, yes, that case is weaker nowadays thanks to cost reductions in expense ratios and commissions). Wall Street can't make much money from broad market index funds, so they have a strong interest in trying to get you to add other things.

Advisors in particular have a need to demonstrate you are getting value for your money by suggesting more complicated portfolios and appearing knowledgable about the extra things they want to add.

If you have a strong wish to own some Berkshire Hathaway, perhaps because you'd actually enjoy attending the annual meetings, it's your money and your life. It's not a crazy thing to do. It could be educational. But as a "major core holding," no. I would ask, if you trust Warren Buffett, why not follow his advice? Direct quote: "I recommend the S&P 500 index fund and have for a long, long time to people."

2) If you want to go in for single stocks, you need to dig. You need to make a major hobby of it.

"XYZ has produced some good returns over the years" is a lousy reason to buy something. At the very least, you need to know enough so that you can personally say how good, and what years.

"I don’t really know much about the company" is a big red flag. If you are going to make a single stock a "major core holding" you need to know a lot about the company, and you need to find it out yourself by doing your own digging, and I mean major homework... not processing off-the-cuff stuff that other people say. Warren Buffett himself believes in major deep dives into the business and accounting details of everything he buys. If you are going to buy Berkshire Hathaway, you should do the same thing yourself.

As has often been observed, the real glory days for Berkshire Hathaway were far in the past. The last big burst of outperformance over the Vanguard 500 Index Fund was around 2000-2003. From 2004 to date, it has pretty much paralleled the S&P 500. This is a biased comparison because I'm intentionally choosing the starting date to prove a point.

Source

So, what are you expecting for the future? BRK doesn't consistently outperform the S&P 500 year after year, the outperformance has come in bursts, with periods of more than a decade in between them. Do you expect another burst, and why?

How patient are you? Warren Buffett has said "our favorite holding period is forever" (but he hasn't really done that). How long are you prepared to hold BRK? What's the longest time period you, personally, have held any single investment?

3) No single stock should be a "major core holding." Don't be fooled, Berkshire Hathaway is a single stock, and subject to the "idiosyncratic risks" of single stocks. It is not comparable to a mutual fund, because it lacks the protections of the Investment Company Act of 1940. Unlike a diversified mutual fund, it is allowed to, and does, hold more than 10% of the outstanding stocks of single companies. Unlike a mutual fund, it holds everything itself, instead of with an independent custodian. It almost certainly uses more leverage than mutual funds are allowed to. It's a single stock in a conglomerate business.

4) Big, famous, household-name blue-chips fail, it's just that they get forgotten. They get forgotten with amazing speed. Younger investors don't care, and are bored when older investors get that far-off look and say "I still can't believe what happened to Kodak" or "everyone used to think LTV was safe." It is already hard to remember what a safe, sure thing GE was universally believed to be. It was in thirty different businesses, and every one of those businesses was one of the top three in its category in the world.

JoMoney · Post by **JoMoney** » Fri Dec 23, 2022 7:39 am

If one holds a market cap weighted broad market index fund, BRK will already be one of their top-ten holdings.
An index fund is what Warren Buffett recommends most people do.

dukeblue219 · Post by **dukeblue219** » Fri Dec 23, 2022 8:00 am

I hold it in taxable since it doesn't pay dividends. It's about 15% of my non-retirement portfolio.

I can't convince anyone BRK will beat any index but its something I like owning and the worst case scenario is pretty benign on this one (assuming it hasn't all been a pyramid scheme for 60 years). It represents a slight anti-Tesla play if nothing else, I guess.

MCR · Post by **MCR** » Fri Dec 23, 2022 8:53 am

In The Elements of Investing, Burton Malkiel and Charles Ellis make the strong argument for investing in low-cost index funds. The authors explicitly talk about Berkshire Hathaway: "Of all the professional money managers, Warren Buffett's record stands out as the most extraordinary. For over 40 years, Buffett's company, Berkshire Hathaway, has earned a rate of return for his stockholders twice as large as the market as a whole...[E]ven Buffett has suggested that most people would be far better off simply investing in index funds. So has David Swensen, the brilliant portfolio manager for the Yale University endowment fund...Finding the next Warren Buffett is like looking for a needle in a haystack. We recommend that you buy the haystack instead, in the form of a low-cost index fund."

But, this appears to be a case of "do as I say, not as I do." A few pages later the authors confess: "Nobody's perfect. We certainly aren't. For example, one of us has a major commitment to the stock of a single company--an unusual company called Berkshire Hathaway. He has owned it for 35 years and has no intention to sell."

Personally, my portfolio consists mainly of low-cost index funds. However, I have a major commitment to a single company -- Berkshire Hathaway. I've tracked BH for a dozen years and have attended over half a dozen shareholder meetings in person and more virtually. My first purchase of BH shares was in October 2011.

I think about this more as co-ownership in the company rather than BH "as part of the mix." (Check out the BH Owner's Manual online on the company's website.) I've read (and in many cases, re-read) every single shareholder letter since 1965. In the process, for example, I've learned a lot about how insurance companies work (and don't work), why capital-light companies like See's Candy can be wonderful thing, the importance of "moats" and why they are hard to create and hold, and why BH eventually shifted to ownership of capital-intensive companies like BNSF and utilities over the past 15 years. I've read Adam Mead's excellent "The Complete Financial History of Berkshire Hathaway." I participate in another online forum that's focused heavily on BH, which allows me to stay abreast of picayune topics like the appointment of a replacement independent director this week or the price at which BH has purchased shares of Occidental Petroleum (it's likely additional shares were purchase this week as the share price fell within the range that BH made purchases earlier this year).

My main point is that there is a difference between thinking about BH as a "name" or a "stock" versus co-ownership of the company. I agree with the general argument for low-cost index funds. And the idiosyncratic risk inherent in investing in a single company and long history of once high-flying companies that come crashing down to the ground are very, very real. Caveat emptor.

I recognize and accept the risk associated with significant investment in a single company. I won't try to convince anyone why I might think this company may be different in important ways (I'll save this for other forums for those of us enthralled by the "cult of Berkshire Hathaway). I will say that the level of engagement I've had with this single company over a dozen years has thoroughly convinced me how much I don't understand about other companies (and industries) in general and the overwhelming importance of trusting an assortment of low-cost index funds to otherwise carry the investing load for my and my family in our portfolio.

Like Burton and Charley said, "Nobody's perfect." I'm certainly not.

Johm221122 · Post by **Johm221122** » Fri Dec 23, 2022 9:22 am

wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

Buffett is 92 years old, how much longer can he produce good returns

Berkshire isn't magic it doesn't have any more ability to beat the S&P 500 long term than Magellan did, especially after Peter Lynch left

Jack FFR1846 · Post by **Jack FFR1846** » Fri Dec 23, 2022 9:34 am

I hold it in my taxable account and over the last few years have done tax loss harvesting out of VTI and SCHB into BRK/b when I can. I don't want the dividends spilled into my taxable earnings when I retire next year.

canadianbacon · Post by **canadianbacon** » Fri Dec 23, 2022 9:36 am

wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

As much respect as I have for Buffett, you are exposed to single-stock risk the same as any other security and there isn't a Bogleheads case for having it as a major core holding.

nisiprius · Post by **nisiprius** » Fri Dec 23, 2022 10:06 am

There are no absolutes, but another characteristic of index funds is you don't need to pick the manager. In this forum, we rarely mention the names of the managers of the Total Stock Market Index Fund or the Total Bond Market Index Fund. (They are mentioned mostly when, e.g. they get interviewed for the Bogleheads' podcast!) People do not pay close attention to management changes. I would guess that less than 10% of the people reading this can name the manager of the Total Bond Market Index Fund, and that less than 1% can name his predecessor.

Nobody says "in 2021, the Vanguard 500 Index Fund outperformed the S&P 500 index, but will Donald M. Butler be able to keep it up?" Nobody agonizes over when Michael Perre will retire as principal portfolio manager for Total International, and whether there is a succession plan in place.

Management is not totally irrelevant to index funds, but it is largely irrelevant. You just don't think about it. You worry about the performance of the market itself, not the manager.

But anybody who wishes to be a prudent investor in an individual stock, or in an actively managed mutual fund, does need to pay attention to the managers and exercise continuing vigilance to see if they are following a consistent strategy. If the performance is attributed to a single individual, you need to decide if that single individual seems steady or is becoming erratic (e.g. for a single stock example, Elon Musk at Tesla; for a mutual fund example, Bill Gross at PIMCO a few years ago.)

In the case of Berkshire Hathaway... and, yes, there are answers for this, but you need to know them... who will be Warren Buffett's successor, and what do you know about their background and track record?

dukeblue219 · Post by **dukeblue219** » Fri Dec 23, 2022 10:15 am

There's a difference between Berkshire and something like Magellan of the 80s and hedge funds of the 2010s. Berkshire is a combination of wholly-owned, profitable subsidiaries and large positions in other companies. It's not as if Buffett is rapidly entering and exiting positions based on a proprietary formula.

I'm not certain that Berkshires performance is dependent on manager "magic" post-Buffett in the same was an an active mutual fund. GEICO, BNSF, Sees Candies etc al will continue to make money whether Buffett is there or not, as will his positions in Apple and Coke.

I wouldn't recommend BRK to anyone as an alternative to VOO per SE, but I'm happy with it being my non-index play. I do not consider it strictly equivalent to a mutual fund but a means to capitalize on opportunities not available to mutual funds.

nisiprius · Post by **nisiprius** » Fri Dec 23, 2022 10:56 am

Berkshire Hathaway is a business.

I am old enough to have actually bought a Hathaway shirt, in the nineteen-seventies. Since the merger of Berkshire and Hathaway was in 1955, and Buffett's acquisition was in 1965, it was really a Berkshire Hathaway shirt in every sense of the word. I believe it was made in the United States, and my wife was annoyed at me for buying it because it was all-cotton.

Berkshire Hathaway is a conglomerate. It's not the only one, and conglomerates are not something Buffett invented.

BRK.A and BRK.B are individual stocks, of a business that happens to be a conglomerate.

It's odd that I can't remember anyone recommending "investing in a portfolio of conglomerates," or a stock mutual fund or ETF that holds only conglomerates. Or suggesting that stocks conglomerates, as a group have special desirable properties that other stocks lack. You'd think there would be a cult of conglomerates, but maybe I haven't looked hard enough.

nedsaid · Post by **nedsaid** » Fri Dec 23, 2022 11:05 am

Like Jimmy Carter, Peter Lynch had lust in his heart but Mr. Lynch lusted for Stocks. In my case, there were stocks that I wanted to own for a long time and one of them was Berkshire-Hathaway. Buffett and Munger won't be around much longer but this company has a nice set of businesses that I want to own. My guess is that eventually that Berkshire-Hathaway like most conglomerates will break up and value will likely be unlocked as the pieces are spun off. If Buffett and Munger's successors can keep things going on well for a while, that will be perfectly fine with me. At some point, the urge to tinker will grow, given the egos of CEO's, it is inevitable. I don't think anyone who fills the CEO position at B-H will want to be remembered as a caretaker who kept doing things the way Warren and Charley would have liked it.

I purchased shares of Berkshire-Hathaway earlier this year and purchased more just recently. It is part of a portfolio of individual stocks that I own, and these stocks are 12%-14% of my retirement. It is reasonably priced, has good business prospects going forward, and has businesses that I want to own. Perhaps the company will start paying a dividend in the future as well.

This isn't a recommendation by the way, it is just me. Not running a stock picking service here.

arcticpineapplecorp. · Fri Dec 23, 2022 11:08 am

nisiprius wrote: ↑Fri Dec 23, 2022 7:34 am 4) Big, famous, household-name blue-chips fail, it's just that they get forgotten. They get forgotten with amazing speed. Younger investors don't care, and are bored when older investors get that far-off look and say "I still can't believe what happened to Kodak" or "everyone used to think LTV was safe." It is already hard to remember what a safe, sure thing GE was universally believed to be. It was in thirty different businesses, and every one of those businesses was one of the top three in its category in the world.

great great post (the entire thing, i'm only condensing the text to make a related point). i hope the OP reads every word of Nisiprius's post.

On the paragraph above, I'll never forget during what seemed like the worst of the Great Recession (it was not, it was still 2008) seeing one of my 80 something year old coworker (he worked seasonally only) at breaktime, on the phone with his son who "managed" his portfolio for him, yelling "I THOUGHT YOU SAID AIG WAS SAFE!!"

Maybe he thought it was "safe" because it would be bailed out. It was. Didn't help. Lost 97-98% of it's value and stayed that way long after the market recovered. Maybe he thought it was safe because it had been around for a very long time. Bogle taught us, the past is not prologue. These pithy phrases are not just memes.

everybody thinks their stodgy, long lived stock is safe. Stocks are not safe. Especially owning them 1 at a time.

nedsaid · Post by **nedsaid** » Fri Dec 23, 2022 11:42 am

arcticpineapplecorp. wrote: ↑Fri Dec 23, 2022 11:08 am
nisiprius wrote: ↑Fri Dec 23, 2022 7:34 am 4) Big, famous, household-name blue-chips fail, it's just that they get forgotten. They get forgotten with amazing speed. Younger investors don't care, and are bored when older investors get that far-off look and say "I still can't believe what happened to Kodak" or "everyone used to think LTV was safe." It is already hard to remember what a safe, sure thing GE was universally believed to be. It was in thirty different businesses, and every one of those businesses was one of the top three in its category in the world.
great great post (the entire thing, i'm only condensing the text to make a related point). i hope the OP reads every word of Nisiprius's post.

On the paragraph above, I'll never forget during what seemed like the worst of the Great Recession (it was not, it was still 2008) seeing one of my 80 something year old coworker (he worked seasonally only) at breaktime, on the phone with his son who "managed" his portfolio for him, yelling "I THOUGHT YOU SAID AIG WAS SAFE!!"

Maybe he thought it was "safe" because it would be bailed out. It was. Didn't help. Lost 97-98% of it's value and stayed that way long after the market recovered. Maybe he thought it was safe because it had been around for a very long time. Bogle taught us, the past is not prologue. These pithy phrases are not just memes.

everybody thinks their stodgy, long lived stock is safe. Stocks are not safe. Especially owning them 1 at a time.

This is why you don't hold shares of stock in concentrated positions compared to the total portfolio. This is why you diversify across industries and check from time to time the future prospects of the businesses. I have had my winners and of course my disappointments with individual stocks. Of my disappointments AIG was one, Lucent Technologies was yet another, and Nortel on top of that. Lucent hurt the most. Yet, the stocks that I have held individually over time have about matched the Vanguard Value Index, my individual stocks tend to be Large Value companies. But yes, there are risks involved and those risks have bit me.

The stock that has the biggest concentration, last I looked a month and a half ago, was 2.31% of my retirement portfolio. That includes what I own of that stock individually and within my funds.

If you own stock individually, you need to do a certain amount of monitoring and maintenance. I don't trade much, I have pretty long holding periods, but I do look at them from time to time and read the Morningstar reports. Put together, they are between 12% and 14% of my retirement portfolio, depending upon when I look.

racy · Post by **racy** » Fri Dec 23, 2022 11:46 am

I bought one share after Black Monday 1987 for around $3300 as I recall. Wish I'd kept it intact rather than converting it into 30 shares of class B, which I then sold parts of to invest in other individual companies. I learned a lot about individual stock risk :

secondopinion · Post by **secondopinion** » Fri Dec 23, 2022 12:19 pm

wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

It is a company, not a mutual fund. Let me be frank, you are better off identifying 10 to 30 stocks that share many of the same characteristics and call that a core holding. Yes, Berkshire is a solid company and shows up in many screenings I do for stocks that meet my criteria. However, it would be wise to include most stocks that fit the criteria (since practically can limit holding too many stocks).

It is not as simple as picking a company because it has person X; you must have some quantitive reasons, and following those reasons will likely include other stocks. Avoid taking security-specific risks that one might not want in a core holding.

ramram22 · Post by **ramram22** » Fri Dec 23, 2022 12:44 pm

wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

That's quite an understatement.

Elle_N · Post by **Elle_N** » Fri Dec 23, 2022 12:47 pm

dukeblue219 wrote: ↑Fri Dec 23, 2022 10:15 am There's a difference between Berkshire and something like Magellan of the 80s and hedge funds of the 2010s. Berkshire is a combination of wholly-owned, profitable subsidiaries and large positions in other companies. It's not as if Buffett is rapidly entering and exiting positions based on a proprietary formula.

This. To elaborate: About 60% of BH's assets are companies BH owns outright. The other 40% of BH's assets are stocks.

When I think of buying BH, I am homed in on BH's historical ability to find and buy outright entire companies at bargain prices, and then hold them so as to make a mighty profit.

On the other hand, since 2008 BH has had about the same performance as an S&P 500 index fund. Perhaps BH has just become too large to buy large enough companies that make a difference in its returns? This concerns me.

I do not think Buffett has expressly said, 'Do not buy BH. Buy an index fund.' Instead I think that people infer Buffet is saying this based on his counsel that, if one is going to hold a basket of stocks, one should just hold an index fund. Maybe it's a distinction without a difference.

the_wiki · Post by **the_wiki** » Fri Dec 23, 2022 1:22 pm

Elle_N wrote: ↑Fri Dec 23, 2022 12:47 pm
dukeblue219 wrote: ↑Fri Dec 23, 2022 10:15 am There's a difference between Berkshire and something like Magellan of the 80s and hedge funds of the 2010s. Berkshire is a combination of wholly-owned, profitable subsidiaries and large positions in other companies. It's not as if Buffett is rapidly entering and exiting positions based on a proprietary formula.
This. To elaborate: About 60% of BH's assets are companies BH owns outright. The other 40% of BH's assets are stocks.

Could you not make a similar claim about Apple or Amazon or Microsoft, or any mega cap? Only their assets would be a lot closer to 100% owned outright. Not sure how it makes BRK any more desirable or other stocks less desirable.

Apple has acquired 125 companies in their lifetime, Amazon 115, Microsoft over 200.

nedsaid · Post by **nedsaid** » Fri Dec 23, 2022 1:25 pm

ramram22 wrote: ↑Fri Dec 23, 2022 12:44 pm
wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?
That's quite an understatement.

As other people have pointed out, Berkshire-Hathaway is a conglomerate and not a Mutual Fund. On the one hand, B-H owns a diversified set of businesses and in a sense gives you some internal diversification but on the other hand, B-H is still a company and a stock whereas a broad index fund will hold many stocks representing many more companies across many economic sectors. You get a bit of diversification within Berkshire-Hathaway but nothing like what you get with a broad index fund like one based on a Total Stock Market Index or the S&P 500.

The downside of Berkshire-Hathaway is that the company as a whole could fail though it could have successful companies within. Don't think bankruptcy for B-H is likely, but I suppose it could happen. Even more unlikely that all 500 companies within he S&P 500 Index would go bankrupt. In terms of investment returns, B-H though it is a diversified conglomerate could underperform a broad market index. Buffett and Munger's successors could simply mess things up.

Another downside is that conglomerates tend not to work over time. Just too many moving parts for a CEO and his team to manage effectively. Buffett and Munger make certain their subsidiary businesses have excellent management and then pretty much leave them alone. I think a successor CEO would be too tempted to micromanage the subsidiary companies and thus mess things up. GE is a conglomerate that is breaking up into separate companies just as others did before.

Could it fit within a portfolio? Certainly. Is it a replacement for a mutual fund or an index fund? Absolutely not. In fact, if you own a broad index fund, you will have ownership of Berkshire-Hathaway within the fund. I have chosen to invest a smaller portion of my portfolio (12% to 14%) in individual stocks, I have an interest in such things, for most all investors they should just stick to the indexes.

If the original poster wants to make an investment in Berkshire-Hathaway, the person will need to do research and determine whether this is a good investment. We cannot provide all of this education within a single thread. Do your own research.

dukeblue219 · Post by **dukeblue219** » Fri Dec 23, 2022 1:31 pm

the_wiki wrote: ↑Fri Dec 23, 2022 1:22 pm Could you not make a similar claim about Apple or Amazon or Microsoft, or any mega cap? Only their assets would be a lot closer to 100% owned outright. Not sure how it makes BRK any more desirable or other stocks less desirable.

Apple has acquired 125 companies in their lifetime, Amazon 115, Microsoft over 200.

Sure. I don't have an inherent problem with anyone owning a good slug of those companies either (granted, Amazon is a little expensive). They're a little more focused than BRK is, and none of this is classic Bogle 3 Fund stuff, but it's not the end of the world.

I like that they can make strategic investments in ways that an active mutual fund cannot. Will it matter? I don't know.

Elle_N · Post by **Elle_N** » Fri Dec 23, 2022 1:56 pm

the_wiki wrote: ↑Fri Dec 23, 2022 1:22 pm
Elle_N wrote: ↑Fri Dec 23, 2022 12:47 pm
dukeblue219 wrote: ↑Fri Dec 23, 2022 10:15 am There's a difference between Berkshire and something like Magellan of the 80s and hedge funds of the 2010s. Berkshire is a combination of wholly-owned, profitable subsidiaries and large positions in other companies. It's not as if Buffett is rapidly entering and exiting positions based on a proprietary formula.
This. To elaborate: About 60% of BH's assets are companies BH owns outright. The other 40% of BH's assets are stocks.

Could you not make a similar claim about Apple or Amazon or Microsoft, or any mega cap? Only their assets would be a lot closer to 100% owned outright. Not sure how it makes BRK any more desirable or other stocks less desirable.

Apple has acquired 125 companies in their lifetime, Amazon 115, Microsoft over 200.

You really think Apple, Amazon and Microsoft's companies cover anywhere near as large a spectrum as BH's? Nor am I persuaded right now that Apple, Amazon and Microsoft go looking for bargains, wherever they are to be found, the way BH seems to. I think these tech-based companies have a keen eye on monopolizing their tech interests to the extent the law allows.

If I buy Apple or Microsoft, I am buying pure, or nearly pure, Tech. With BH, I am buying an insurance company, a furniture store, a brick company, a jewelry store, a paint company, a railroad, a fast food company (Dairy Queen), an underwear company, a battery company; more. See https://en.wikipedia.org/wiki/List_of_a ... e_Hathaway .

The OP asked about making BH a core holding. I personally limit any one non-fund position to 5%, but given BH's diversity, I would take this to 7%.

Grist for the OP's mill.

smooth_rough · Post by **smooth_rough** » Fri Dec 23, 2022 2:12 pm

I'm mostly vanguard index investor. But BRKB has been great diversifier for me. It did well (relatively) in 2022, compared to any index. If you want diversifier it can work. Its also great in taxable account. IMO your only risk is when to buy in. Maybe check out 52 week history, and use that to guide you on valuation for buying. That is form of market timing, which means bogelheads are going to dump cold water on the idea. But it was best part of my AA during 2022. Your mileage may vary.

KarlJ · Post by **KarlJ** » Fri Dec 23, 2022 2:19 pm

About two decades ago, I purchased a small position in BRK B shares just after the less expensive B shares first became available, mostly to qualify to attend the annual meetings. During the annual meetings at the Omaha Civic Auditorium there was a shareholder's dinner at Gorat's, a family-owned steakhouse favored by Warren Buffett. Recently I was reading A Man for All Markets by Edward O. Thorp whose portfolio consists of just one large stock position consisting entirely of Berkshire Hathaway A shares.

The BRK B shares turned out to be more profitable than any other investment I have ever owned, increasing many folds. I sold the shares when I read Bill Bernstein describe Buffett's success as simply due to luck.

nisiprius · Post by **nisiprius** » Fri Dec 23, 2022 8:13 pm

Elle_N wrote: ↑Fri Dec 23, 2022 12:47 pm...I do not think Buffett has expressly said, 'Do not buy BH. Buy an index fund.'

Nor do I.

Instead I think that people infer Buffet is saying this based on his counsel that, if one is going to hold a basket of stocks, one should just hold an index fund.

I don't think that's what he is saying.

1996:

Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

2013:

The goal of the non-professional should not be to pick winners--neither he nor his "helpers" can do that--but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.

2017:

The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

Many more examples can be found.

NoRegret · Post by **NoRegret** » Sat Dec 24, 2022 2:58 am

wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

OP,

I've long been an admirer of Buffett but only took a position at the end of last year, and continued to add in the start of this year -- with the explicit goal of riding out what I thought was a possible bear market. Since BRK outperformed SPX this year, so far I'm reasonably satisfied with that decision.

I believe in knowing what I own and since it was a large allocation for me, I tried to learn as much about it as I could. There have been many posts about BRK on this forum but imo few shows any understanding of the way BRK is organized TODAY.

Buffett made his reputation as a stock picker. Indeed, there was an AQR paper dissecting all his stock picks into factors with the added bonus of a 1.8x leverage that he got from the insurance float. However to understand today's BRK, one has to understand the centrality of the two operating units: BHE (Berkshire Hathaway Energy) and BNSF. They are two businesses with moats that can earn a reasonable return on capital. BHE is a collection of utilities and energy infrastructure that has a regulatory moat, and the railway business is a geographical oligopoly. They have scale and can absorb a lot of capital.

The other wholly owned businesses (See's, Nebraska furniture mart and the like) including Geico which BRK has been long known for, as well as the publicly traded stock portfolio, generate cash that is directed to BHE/BNSF. This structure solves a dilemma BRK used to have when it was just a collection of very profitable businesses that threw off tons of cash: Buffett and Munger would be sitting on a large pile of cash in a bull market with nothing to buy. It was with the acquisition of MidAmerican in 1999 that they started this transformation.

There are other reasons to like the stock -- I can't get into each one -- but the most important is in an inflationary environment, as money gets more expensive, the cost of capital advantage becomes more evident. There are no other managers who operated businesses in the previous high inflationary period. Buffett's acquisition of OXY and CVX this year shows his understanding.

Of course Buffett and Munger's age is a factor. But I believe the structure of BRK is durable, its BoD unique and the share class structure makes it difficult to attack (even though I think sum-of-parts would be higher anyway). The succession plan is well known and sensible.

My main concern is whether one day BRK will be deemed too powerful and be forced break-up. The risk is low while Warren is alive given the image and relationships he has cultivated.

That is not to say that BRK is perfect. E.g. Progressive has shown it has better underwriting, and I think Union Pacific has better efficiency than BNSF. But as a collection of businesses that solves the internal compounding problem at the conglomerate level, BRK is quite unique.

I suggest you do your own DD, and that means going beyond this forum. Chris Bloomstran of Semper Augustus is the real axe on BRK.

Outer Marker · Post by **Outer Marker** » Sat Dec 24, 2022 6:08 am

nedsaid wrote: ↑Fri Dec 23, 2022 11:05 am I don't think anyone who fills the CEO position at B-H will want to be remembered as a caretaker who kept doing things the way Warren and Charley would have liked it.

If I ever get offered the job, that's EXACTLY how I'd like to be remembered!

doobiedoo · Post by **doobiedoo** » Sat Dec 24, 2022 6:58 am

wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

I own BRKb. It is 7% of my net worth, so yes, I could make a case for it as a major core holding. But I won't.

Because you should stick to your investment methodology. **IF** your chosen investment methodology includes buying individual stocks, that methodology should also determine the criteria to pick stocks, when to sell, diversification, etc. And you shouldn't be trying to make up your investment methodology on the fly.

Nisiprius makes good arguments for adhering to the BH methodology.
I will say that the Buffett quotes about investing in the SP500 were meant for his estate left to his wife. Buffett sometimes refers to this as a "know-nothing" approach. Know-nothing is not meant to be derogatory.

From BRK 2013 annual report: https://www.berkshirehathaway.com/2013ar/2013ar.pdf
Buffett:
".. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. .. My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers." [Bold emphasis is mine.]

If you really want to CHANGE your investment methodology, that's a different question.

Jack FFR1846 · Post by **Jack FFR1846** » Sat Dec 24, 2022 7:18 am

I hold BH in my taxable account to avoid dividends. At retirement, I'll want to have a good handle on income to be able to do Roth conversions at a low bracket up to the limit of the bracket. As Nisiprius posted, the graphs of BH vs VTI are "close enough" for me.

niagara_guy · Post by **niagara_guy** » Sat Dec 24, 2022 7:26 am

I have 90% of my stock dollars in S&P 500 index funds, the rest in 3 stock including Brk.b. I don't even know if these 3 stocks have beat the S&P 500 index, but they are not too far off. Doing this has not really helped/hurt my portfolio, I guess I did it for fun. My view is that having a small percentage of your portfolio in brk.b won't hurt and probably won't help.

I join the Berkshire annual meeting video call and I don't think you need to be a stockholder to join the call.

Wiggums · Post by **Wiggums** » Sat Dec 24, 2022 7:56 am

nedsaid wrote: ↑Fri Dec 23, 2022 11:42 am Of my disappointments AIG was one, Lucent Technologies was yet another, and Nortel on top of that. Lucent hurt the most.

I hired two telecom guys from Lucent. We would talk about the stock market at lunch. I tried to convince them to diversify. I even took them to the local Fidelity office. Neither one ended up rolling their funds, because they were going to have to pay tax on a small portion ($5,000). They watched as the number of employees shrunk from 165k to 35k, and the stock fall to 98 cents. It was horrible.

Elle_N · Post by **Elle_N** » Sat Dec 24, 2022 10:51 am

NoRegret wrote: ↑Sat Dec 24, 2022 2:58 amBuffett made his reputation as a stock picker. Indeed, there was an AQR paper dissecting all his stock picks into factors with the added bonus of a 1.8x leverage that he got from the insurance float.

Just saying: "made" seems to me to be the key word. Per the AQR paper, and from 1996 on, Buffet's/BH's stock picks have been nothing impressive vis-à-vis the total stock market index. See https://www.tandfonline.com/doi/full/10 ... j.v74.n4.3

If Buffett has a reputation as a good stock picker, then I think this is on account of media hype from decades ago. The media continues to over-hype Buffett as an oracle. Why does the media do this? Because writing about Buffett sells subscriptions. But truth to power:

Numerous sites state that Buffett and his partners scored a coup around 1964 when Buffett's business partnership put 40% of its stock in the troubled American Express Company (AXP) (after it had tanked by 50% on "bad news") for $35 a share. By 1967, AXP had risen to $180. Buffett has never replicated this success. What he has done is made some truly dreadful stock picks in the last 20 or so years. Examples follow.

AIB and BOI (two Irish banks), purchased in 2008. For 2008 BH ended up writing off both stock positions. In Buffett's own words: "During 2008, I spent $244m for shares of two Irish banks [AIB, BOI] that appeared cheap to me," he said. "At year end we wrote these holdings down to market: $27m, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes 'unforced errors'."

COP, purchased in fourth quarter of 2005, added shares in subsequent years, started selling in 2009, sold remaining shares in 2013.

BAC, purchased in second quarter of 2007, sold in 2010 at an enormous loss.

Kraft-Heinz has done incredibly poorly.

I admire Buffett and Berkshire Hathaway, but this has nothing to do with any talent, in the last few decades, at picking stocks. What makes Buffett special is he does not tout himself as a wizard. He freely admits his mistakes. I

Importantly today, BH has grown so large that it faces difficulties in buying any one stock because the amount of money BH needs to spend (anticipating good returns down the road) can tend to 'move the market' for the stock price.

In my opinion, the potential buyer of BH stock should not value BH either because it seems like a superior mutual fund or because they think 'That Warren Buffett sure knows how to pick stocks.' The potential buyer should look at the larger picture of what BH is today (some 60% of companies owned outright; some 40% in individual stock positions) and what BH can and perhaps cannot do (on account of its size) at this point.

nedsaid · Post by **nedsaid** » Sat Dec 24, 2022 10:58 am

Outer Marker wrote: ↑Sat Dec 24, 2022 6:08 am
nedsaid wrote: ↑Fri Dec 23, 2022 11:05 am I don't think anyone who fills the CEO position at B-H will want to be remembered as a caretaker who kept doing things the way Warren and Charley would have liked it.
If I ever get offered the job, that's EXACTLY how I'd like to be remembered!

Well, you and I won't have to worry about that.

Charles Joseph · Post by **Charles Joseph** » Sat Dec 24, 2022 11:02 am

wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

Berkshire Hathaway fits quite nicely into my portfolio as the fifth largest holding in the S&P 500. It's a fantastic company.

nedsaid · Post by **nedsaid** » Sat Dec 24, 2022 11:05 am

Wiggums wrote: ↑Sat Dec 24, 2022 7:56 am
nedsaid wrote: ↑Fri Dec 23, 2022 11:42 am Of my disappointments AIG was one, Lucent Technologies was yet another, and Nortel on top of that. Lucent hurt the most.
I hired two telecom guys from Lucent. We would talk about the stock market at lunch. I tried to convince them to diversify. I even took them to the local Fidelity office. Neither one ended up rolling their funds, because they were going to have to pay tax on a small portion ($5,000). They watched as the number of employees shrunk from 165k to 35k, and the stock fall to 98 cents. It was horrible.

I learned a hard lesson from that experience with Lucent. Peter Lynch said to never fall in love with your stocks and this is a good illustration why. Though I have continued to own stocks individually, I do make certain that no one stock gets to be to be too high of a percentage of my portfolio.

Mr. Stubacca · Post by **Mr. Stubacca** » Sat Dec 24, 2022 9:31 pm

I have held brk.b at various points over the last 22 years. Sold it a few years ago to go to 3 fund portfolio. Every now and then I get the itch to get back in but have resisted. Would be a small enough part of portfolio that it really would have minimal effect either way

WolfgangPauli · Post by **WolfgangPauli** » Sat Dec 24, 2022 10:13 pm

One of the posters outlined a key point. If you buy VTSAX for example, your portfolio is about 1.32% BRKB. Further, in BRKB you are heavily weight to Apple, which is also very heavy in VTSAX (about 5.59%). So, buying a substantial position in BRKB and having VTSAX as a core will heavily weight you to Apple (May just want to buy Apple).

Anyway, I am a big believer in just having VTSAX however, full disclosure, I do own a very small amount of BRKB mainly because I work for a Berkshire portfolio company and I just like to have a small amount.

Northern Flicker · Post by **Northern Flicker** » Sat Dec 24, 2022 10:40 pm

wmd36 wrote: ↑Fri Dec 23, 2022 5:54 am I was hoping to get some insight as to how Berkshire may fit into some people’s portfolio mix? I don’t really know much about the company . Buffett seems to have produced some good returns over the years.
What are the downsides to owning this stock? Could one make a case for having it as a major core holding ?

The downside is that you are taking the business risk of BRK. This is not an investment in a fund product that delivers the return of BRK's portfolio to the investor.

Mr. Buffett directed the trustee who will manage his wife's assets when he is gone to invest in an index fund, not BRK or any other individual stock. He specifically recommends that individuals should not invest in individual stocks.

privateer79 · Post by **privateer79** » Sat Dec 24, 2022 10:54 pm

I have maybe 10% of my total portfolio in Berkshire (all in taxable)... I've had some for probably 20 years now, and am happy with the allocation.

I like that its broadly diversified owning both entire companies, and many stock holdings, however doesn't have to distribute dividends. (being both in a high tax state, and high tax stage of my life, this is beneficial)

I also think that due to Berkshire & Buffet's sterling reputation they are able to get preferential treatment unavailable to ordinary (or professional) investors .... Bank of America won't give out a few extra Billon in warrants to get "Privateer79 invested in Bank of America" printed in the WSJ in the depths of 2008 crash, but they did exactly that for Buffett/Berkshire. I've seen this happen a bunch of times over the years. still to be seen if they can still swing these deals after Buffet departs.

(my current employer happens to be a public company in the Berkshire portfolio, so I smile as I sell my RSU's and then diversify into the "parent" company

)

cegibbs · Post by **cegibbs** » Sun Dec 25, 2022 4:49 am

Berkshire Hathaway is approximately 30% of our total investable assets. Shares were first purchased in 1978.

burritoLover · Post by **burritoLover** » Sun Dec 25, 2022 7:39 am

If you want to hold a small percentage of individual stocks in your portfolio - cool - that's all good. But to have Berkshire as the "core holding" of your entire retirement portfolio, that's likely the result not understanding how risky that actually is.

NoRegret · Post by **NoRegret** » Sun Dec 25, 2022 5:39 pm

Elle_N wrote: ↑Sat Dec 24, 2022 10:51 am
NoRegret wrote: ↑Sat Dec 24, 2022 2:58 amBuffett made his reputation as a stock picker. Indeed, there was an AQR paper dissecting all his stock picks into factors with the added bonus of a 1.8x leverage that he got from the insurance float.
Just saying: "made" seems to me to be the key word. Per the AQR paper, and from 1996 on, Buffet's/BH's stock picks have been nothing impressive vis-à-vis the total stock market index. See https://www.tandfonline.com/doi/full/10 ... j.v74.n4.3

If Buffett has a reputation as a good stock picker, then I think this is on account of media hype from decades ago. The media continues to over-hype Buffett as an oracle. Why does the media do this? Because writing about Buffett sells subscriptions. But truth to power:

Numerous sites state that Buffett and his partners scored a coup around 1964 when Buffett's business partnership put 40% of its stock in the troubled American Express Company (AXP) (after it had tanked by 50% on "bad news") for $35 a share. By 1967, AXP had risen to $180. Buffett has never replicated this success. What he has done is made some truly dreadful stock picks in the last 20 or so years. Examples follow.

AIB and BOI (two Irish banks), purchased in 2008. For 2008 BH ended up writing off both stock positions. In Buffett's own words: "During 2008, I spent $244m for shares of two Irish banks [AIB, BOI] that appeared cheap to me," he said. "At year end we wrote these holdings down to market: $27m, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes 'unforced errors'."

COP, purchased in fourth quarter of 2005, added shares in subsequent years, started selling in 2009, sold remaining shares in 2013.

BAC, purchased in second quarter of 2007, sold in 2010 at an enormous loss.

Kraft-Heinz has done incredibly poorly.

I admire Buffett and Berkshire Hathaway, but this has nothing to do with any talent, in the last few decades, at picking stocks. What makes Buffett special is he does not tout himself as a wizard. He freely admits his mistakes. I

Importantly today, BH has grown so large that it faces difficulties in buying any one stock because the amount of money BH needs to spend (anticipating good returns down the road) can tend to 'move the market' for the stock price.

In my opinion, the potential buyer of BH stock should not value BH either because it seems like a superior mutual fund or because they think 'That Warren Buffett sure knows how to pick stocks.' The potential buyer should look at the larger picture of what BH is today (some 60% of companies owned outright; some 40% in individual stock positions) and what BH can and perhaps cannot do (on account of its size) at this point.

An a posteriori deconstruction of Buffett's stock picking into beta factors that were not known at the time in no way diminishes his record. Being even with the index from 1996 which included both the dot com mania and the more recent historic value underperformance is to me a plus rather than minus.

To be even handed, his poor picks also include air lines and Precision Castparts more recently. BAC actually turned out ok. It wasn't clear if Apple was entirely his idea. There's no need to be an uncritical fan boy. Like all strategies, a sizable percentage won't work out. However, Buffett has been able to stay true to his style, keep at it for a long time, and find a way to scale -- the latter has not been recognized enough.

Like I said, the real danger to BRK is governmental limit to its economic clout. Buffett has cultivated an image of a cuddly grandpa and an iconic American investor, which has afforded him a lot of regulatory leeway. But make no mistake, my money is with a ruthless operator and a consummate capital allocator. Like anything else, it is subject to periodic review.

TwstdSista · Post by **TwstdSista** » Mon Dec 26, 2022 6:53 am

We have 8 shares of BRK-B and are planning to buy 2 more eventually. The husband is a big fan of Buffett. It's a very small part of our portfolio and we consider it play money. It's also our only individual stock.

HMSVictory · Post by **HMSVictory** » Mon Dec 26, 2022 7:12 am

Core holding - no. VTSAX is my core holding and always will be. Its KISS.

10% of your portfolio as a value / manager tilt? Sure go for it. I see no harm in that.

Elle_N · Post by **Elle_N** » Mon Dec 26, 2022 10:18 am

NoRegret wrote: ↑Sun Dec 25, 2022 5:39 pmTo be even handed, his poor picks also include air lines and Precision Castparts more recently. BAC actually turned out ok.

Let's suppose BH/Buffett had not sold BAC. For he second quarter of 2007 (when BH bought BAC), the high price for BAC was about 52 and the low was about 49. This past year BAC has traded between about 30 and 50. To date; after some 15 years; and even adding reinvested dividends (see https://www.dividendchannel.com/drip-re ... alculator/) all signs are that BAC did not turn out okay compared to a total market index or the S&P 500.

To me, the only lesson to draw from Buffett's/BH's stock picks is that being diversified is everything.

WolfgangPauli · Post by **WolfgangPauli** » Mon Dec 26, 2022 10:46 am

Remember, Buffett is a value investor in the way of Benjamin Graham. So, a few points to keep in mind and if you are aligned with his belief, then it is a good investment. A few items:

1) His investment horizon is generally "forever". He looks to buy things undervalued then hold them a very long long time waiting for the economy to catch up. This means there are movements in the market, which can be very long in duration, where he looks like he missed the boat. He is fine with that (As are all BG disciples). He is anything but a short term investor and, for him, short term can be like 10 years.

2) He holds a lot in cash. Again, a BG disciple who believes he will never ever have to sell positions just to raise cash. I think he and Munger declared they will always have $20bl in cash / cash equivalents so he can pounce (as he did in the financial crisis) when needed. As of their last 10Q they have in cash, cash equivalents and short term investments (Treasury Bills) $105bl.

3) A lot of his investments are in companies and most of these companies are in the "infrastructure" category. He makes houses, bricks, drives cargo in trains, and owns energy, lots of energy. This is not sexy - no electric cars, fancy cloud computer etc. etc and certainly no bitcoin and gold. The closest he comes to sexy is his significant investment in Apple.

4) I know he and Munger are old but based on listening to the last annual meeting, Greg Able appears to be following exactly in these footsteps.

So, absolutely nothing wrong with buying Berkshire as long as you absolutely subscribe to these beliefs. These are values to him like religion is and this will guide where your investment goes and what it does.

Hope that helps.

bondsr4me · Post by **bondsr4me** » Mon Dec 26, 2022 10:49 am

WolfgangPauli wrote: ↑Mon Dec 26, 2022 10:46 am Remember, Buffett is a value investor in the way of Benjamin Graham. So, a few points to keep in mind and if you are aligned with his belief, then it is a good investment. A few items:

1) His investment horizon is generally "forever". He looks to buy things undervalued then hold them a very long long time waiting for the economy to catch up. This means there are movements in the market, which can be very long in duration, where he looks like he missed the boat. He is fine with that (As are all BG disciples). He is anything but a short term investor and, for him, short term can be like 10 years.

2) He holds a lot in cash. Again, a BG disciple who believes he will never ever have to sell positions just to raise cash. I think he and Munger declared they will always have $20bl in cash / cash equivalents so he can pounce (as he did in the financial crisis) when needed. As of their last 10Q they have in cash, cash equivalents and short term investments (Treasury Bills) $105bl.

3) A lot of his investments are in companies and most of these companies are in the "infrastructure" category. He makes houses, bricks, drives cargo in trains, and owns energy, lots of energy. This is not sexy - no electric cars, fancy cloud computer etc. etc and certainly no bitcoin and gold. The closest he comes to sexy is his significant investment in Apple.

4) I know he and Munger are old but based on listening to the last annual meeting, Greg Able appears to be following exactly in these footsteps.

So, absolutely nothing wrong with buying Berkshire as long as you absolutely subscribe to these beliefs. These are values to him like religion is and this will guide where your investment goes and what it does.

Hope that helps.

+1

Well stated and I totally agree with your post.

IMHO, there is nothing wrong with holding BH IF the investor is a long-term investor.

miket29 · Post by **miket29** » Mon Dec 26, 2022 12:08 pm

WolfgangPauli wrote: ↑Mon Dec 26, 2022 10:46 am4) I know he and Munger are old but based on listening to the last annual meeting, Greg Able appears to be following exactly in these footsteps.

I hope so, but that's my concern about Berkshire.

I believe that Buffett and Munger have been able to beat the market thru their intelligence. Buffett has said with regard to EMH

“Naturally the disservice done students and gullible investment professionals who have swallowed Efficient Market Hypothesis has been an extraordinary service to us. In any sort of a contest – financial, mental or physical – it’s an enormous advantage to have opponents who have been taught that it’s useless to even try.”

However the patience and skill they have is rare, and choosing successor(s) who have it is an issue. It's not just that skill, it's choosing someone that will put Berkshire investors first. About a decade ago Buffett fired a Berkshire director, David Sokol, for investing in a company he then turned around and pitched to Buffett for acquisition. Sokol had been seen by some as in line to succeed Buffett as head of Berkshire. As part of the general public we'll never know if that's true but I think it illustrates an additional danger of a single stock as a major holding.